The loan from the Homes and Communities Agency will unlock the development of a new 5,500 homes community to be called Sherford.

Over the course of 15 years more than £1bn will be ploughed into the South Hams district scheme.

A development consortium led by Red Tree can now engage contractors to deliver a series of important road and utilities improvements for the first phase of house building.

Red Tree Partner James Koe added: “The funding is the vital catalyst to the commencement of the development and this is exciting news for Sherford and for the local economy.

“With the added delivery capability of Taylor Wimpey, Bovis Homes and Linden Homes and the explicit support of the government in providing this funding we can all now start the process of delivering on these ambitions.

Cllr John Tucker, Leader of South Hams District Council, said: “We now hope that the Government loan to the developers will kick start the scheme and lead to much needed homes in the South Hams and jobs for local people.”

Sherford has been on the stocks for a long time with original plans dating back to the 1990s.

The new market town is the fifth large-scale site that the government has helped to accelerate since August last year.

It follows a £20m investment in the second phase of Cranbrook, in nearby East Devon in December 2012.